Self-employed expenses

The following guide outlines the expenses and deductions which can be claimed and should be accounted for when you are self-employed. It is important to understand and be clear on the expenses that you can claim as part of your day-to-day business. Failing to claim expenses means you will simply pay more tax than you should, new and small business often trip themselves up by failing to claim the correct expenses, if you are unsure, we suggest using an accounting software solution which, for a few pounds a year, can save you hundreds or thousands of pounds in unclaimed or incorrectly claimed expenses.

Office, property and equipment

You can claim items you’d normally use for less than 2 years as allowable expenses. For example:

·   Stationery

·   Rent, rates, power and insurance costs

For equipment you keep to use in your business, e.g. computers or printers, claim:

·   Allowable expenses if you use cash basis accounting 

·   Capital allowances if you use traditional accounting

You can’t claim for any non-business use of premises, phones or other office resources.

Stationery

You can claim expenses for:

·   Phone, mobile, fax and internet bills

·   Postage

·   Stationery

·   Printing

·   Printer ink and cartridges

·   Computer software your business uses for less than 2 years

·   Computer software if your business makes regular payments to renew the licence. This can still be claimed even if you go over the two-year threshold.

Rents, rates, power and insurance costs

You can claim expenses for:

·   Rent for business premises

·   Business and water rates

·   Utility bills

·   Property insurance

·   Security

·   Using your home as an office (only the part of the home actually used for said business

Business premises

You can’t claim expenses or allowances for buying building premises.

Building alterations or the replacing of equipment can be claimed as per the below:

·   Allowable expenses if you use cash basis accounting 

·   Capital allowances if you use traditional accounting

You can also claim capital allowances for some integral parts of a building, e.g. water heating systems.

Car, van and travel expenses

You can claim allowable business expenses for:

·   Vehicle insurance

·   Repairs and servicing

·   Fuel

·   Parking

·   Hire charges

·   Vehicle licence fees

·   Breakdown cover

·   Train, bus, air and taxi fares

·   Hotel rooms

·   Meals on overnight business trips

You can’t claim for:

·   Non-business driving or travel costs

·   Fines

·   Travel between home and work

You may choose to calculate your car, van or motorcycle expenses using a flat rate  (known as simplified expenses) for mileage instead of the actual costs of buying and running your vehicle.

Clothing expenses (Uniform tax)

You can claim allowable business expenses for:

·   Uniforms

·   Protective clothing needed for your work

·   Costumes for actors or entertainers

Everyday clothing cannot be claimed for even if you wear it for work.

Staff expenses

You can claim allowable business expenses for: 

·   Employee and staff salaries

·   Bonuses

·   Pensions

·   Benefits

·   Agency fees

·   Subcontractors

·   Employer’s national insurance

You can’t claim for domestic help, carers or nannies etc.

Reselling goods 

You can claim allowable business expenses for:

·   Goods for resale (stock)

·   Raw materials

·   Direct costs from producing goods

You can’t claim for:

·   Any goods or materials bought for private use

·   Depreciation of equipment

Legal and financial costs

Accountancy, legal and other professional fees can count as allowable business expenses. 

You can claim costs for:

·   Hiring of accountants, solicitors, surveyors and architects for business reasons

·   Professional indemnity insurance premiums

You can’t claim for:

·   Legal costs of buying property and machinery - if you use traditional accounting, claim for these costs as capital allowances 

·   Fines for breaking the law

Financial charges e.g. bank or credit card

You can claim business costs for:

·   Bank, overdraft and credit card charges

·   Interest on bank and business loans

·   Hire purchase interest

·   Leasing payments

·   Alternative finance payments, e.g. Islamic finance

If you’re using cash basis accounting you can only claim up to £500 in interest and bank charges.

You can’t claim for repayments of loans, overdrafts or finance arrangements.

Insurance policies

You can claim for any insurance policy for your business, e.g. public liability insurance.

Claiming when your customer doesn’t pay you

If you’re using traditional accounting, you can claim for amounts of money you include in your turnover but won’t ever receive. These are known as bad debts. However, you can only write off these debts if you’re sure they won’t be recovered from your customer in the future.

You cannot claim for:

·   Debts not included in turnover

·   Debts related to the disposal of fixed assets, egg land, buildings, machinery

·   Improperly calculated bad debts. Estimates of debts will not be accepted.  

Bad debts can’t be claimed if you use cash basis accounting because you’ve not received the money from your debtors. With cash basis, you only record income on your return that you’ve actually received.

Marketing, entertainment and subscriptions

You can claim allowable business expenses for:

·   Advertising in newspapers or directories

·   Bulk mail advertising (mailshots)

·   Free samples

·   Website costs

You can’t claim for:

·   Entertaining clients, suppliers and customers

·   Event hospitality

Subscriptions

You can claim for:

·   Trade or professional journals

·   Trade body or professional organisation membership if related to your business

You can’t claim for:

·   Payments to political parties

·   Gym membership fees

·   Donations to charity - but you may be able to claim for sponsorship payments

Claiming expenses

It’s imperative you keep records of all your business expenses as proof of your costs.

Add up all your allowable expenses for the tax year and put the total amount on your SATR or use a self-assessment software provider to upload this information periodically.

It’s not compulsory to provide proof of your expenses when submitting your return but the HMRC may ask for them when carrying their calculation.